Magistrate Recommends Sanctions To Court

November 11, 2004|By Kathy Bushouse Business Writer

A federal magistrate recommended Wednesday that a preliminary injunction be put in place that would prevent Mutual Benefits Co. from doing business, saying evidence shows the company violated federal securities laws and would likely do so again if allowed to go back to normal operations.

U.S. Magistrate Barry Garber wrote in his recommendation and report to U.S. District Judge Federico Moreno that the Securities and Exchange Commission showed in documents and during court hearings in June and July that the Fort Lauderdale viatical settlement company had violated federal securities laws and committed fraud. Garber wrote the company's actions were "so obvious that the defendants must have known that their conduct constituted fraud."

Mutual Benefits bought life insurance policies from the terminally ill and elderly, and then offered a share of those policies to investors. When the person died, the investors collected.

The problem alleged by the SEC was that Mutual Benefits underestimated life expectancies for the policies it sold to investors, didn't alter life expectancies despite evidence showing they were wrong, and presented investors with material containing false information. That's how the company committed fraud, the SEC alleged.

Company officials have maintained their products weren't securities and therefore not subject to federal securities laws.

Garber wrote that Mutual Benefits should not be allowed to reopen because the company and its principals "have refused to acknowledge their violations [of securities laws] and the anti-fraud provision of the federal securities laws, and in fact they continue to assert that their sales of the viatical settlements did not constitute sales of unregistered securities and that the federal securities laws do not apply to their conduct."

Garber's report and recommendation will be forwarded to Moreno, who will make the ruling. The parties in the case have 10 days to file written objections.

"It's a very positive development in the SEC's case, and I think vindicates our position that these are serious securities law violations," said Teresa Verges, an assistant regional director with the SEC in Miami.

The SEC also named in its case Mutual Benefits President Peter Lombardi, and the company's two founders, brothers Joel and Leslie Steinger.

Though Garber's ruling recommended against Mutual Benefits and its representatives, he recommended Moreno deny an SEC request to issue preliminary injunctions against six consulting companies. Those companies were not shown to have committed securities fraud, Garber wrote.

Attorneys representing Mutual Benefits and its principals could not be reached for comment Wednesday.